Most Insurance Policies Prohibit Direct Access from the Original Insured

question 28

Multiple Choice

Most insurance policies prohibit direct access from the original insured to the reinsurer.The prohibition exists because:

• A)insurance companies realized that the original insured can take insurance directly from the reinsurance company and put them out of business.
• B)direct assess of the original insured to the reinsurer is illegal.
• C)reinsurance companies do not want to deal directly with original insureds.
• D)the insurance company does not want the original insured to know that it is reinsuring the risks.
• E)the reinsurance agreement is a separate contract from the primary insurance contract.

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Definitions:

Payback Period

The amount of time it takes to recover the cost of an investment through its cash inflows.

Payback

The method of calculating the duration required to recover the cost of an investment, emphasizing the time it takes to reach a breakeven point.

Annual Cash Flows

The total amount of money being transferred into and out of a business, affecting its liquidity, over a year.

Required Rate

The minimum return that investors expect to earn from an investment, influencing many financial decisions.